Market Comment

Snapping Back

March 11, 2012

“If you pay attention to what the market is saying rather than forcing your will on the market, it will give you subtle clues as to what it is going to do. There is always a message but you are not going to pick it up unless you have an open mind.”
            –Linda Bradford Raschke, “Market Wizard”

Shares wasted little time snapping back late last week from what turned out to be nothing more than a 3.3% reaction off the top at 3,000.

As the below chart shows, the snapback came on unimpressive volume despite the presence of Friday’s NFP report.


The lighter activity on the Wednesday-Friday recovery does not merit much discussion. It is not hard to find a blemish on each day’s activity, if one looks hard enough. Such micro-analysis can obscure the bigger picture, i.e. that shares are in a bull market with broad leadership, speculative sentiment, accommodative monetary policy, and an expanding economy.

This picture does not appear to be going away. When it does, the market will offer signposts for all to notice, just as it did at the start of this bull.

Pullbacks in a bull market, even as short-lived as that of last week, afford the opportunity to determine which titles are the most outstanding actors.

Among the names, Select Comfort (SCSS), Sally Beauty Holdings (SBH), Starbucks (SBUX), Under Armour (UA), Monster Beverage (MNST), Athenahealth (ATHN), Michael Kors Holdings (KORS), Priceline (PCLN), Petsmart (PETM), and Ulta Salon (ULTA) all hit new highs last week.

None of these offer an attractive entry as they were already extended from their most recent base.

Netsuite (N), noted here a week ago as having a “reasonable entry point for an aggressive speculator [on] a takeout of the Feb. 28 high at 50.20,” could still be taken at this level, using a junior-sized position. However the v-shape of its action last week makes it less attractive than previously, especially given the disparity between volume on this decline vs. the volume of the Wednesday-Friday rebound, as seen below. In a perfect world, N would do nothing for the next few weeks before coming out. This would remove some of the speculation in its shares and take attention away from it, which would better enable a successful run from these levels.

Netsuite (N) Gilmo Report Stock Chart

Last week, Spirit Airlines (SAVE) was mentioned as having “A potential entry for an aggressive speculator…above the Feb. 21 high of 19.96, using a junior-sized position with a 7% stop in case proven incorrect.”

The setup is intact.

Spirit Airlines (SAVE) Gilmo Report Stock Chart

Guidewire Software (GWRE) is added to the watch list. The stock vaulted 93% in its first four weeks after going public in January. GWRE is worth monitoring due to its strong industry group and a 93% earnings growth estimate for the July ’13 fiscal year. Technically, the stock had a shakeout and found support just above the 20 level last Tuesday.

Guidewire Software (GWRE) Gilmo Report Stock Chart

Teavana Holding (TEA) holds steady after its recent failed breakout attempt. Earnings are due out March 28. Overall volatility is ebbing along with volume. This is very speculative, with an average daily dollar volume of less than $6MM. Earnings growth is estimated by most analysts at 47%/30% for the January ’12/’13 fiscal years.

Teavana Holding (TEA) Gilmo Report Stock Chart

Francesca’s Holdings (FRAN) perked up last week ahead of its earnings report due shortly. This is another very speculative name by virtue of its fairly thin liquidity (averagedaily dollar volume of about $10.6MM). Most analysts predict earnings growth of 44%/36% in the January ’12/’13 years. Worth watching, but more seasoning (base-building on its chart) is needed before this can be taken seriously at current levels.

Francesca's Holdings (FRAN) Gilmo Report Stock Chart

Fusion-Io (FIO) was
mentioned here last week (“While the stock does not currently offer an attractive entry, it is being monitored here for a possible setup down the road.”). The comment holds. The shares receive an “A” for effort, as they are doing everything they should be doing in order to be taken seriously as a contender for leadership. The chart below shows a number of large volume days in February and March coinciding with up days in price, the most recent occurring last Wednesday.

Fusion-Io (FIO) Gilmo Report Stock Chart

Last week’s comment for Linkedin (LNKD) holds (“The Feb. 21 high of 96.31 still looks to be a reasonable entry pivot to use in the absence of additional evidence”).

Linkedin (LNKD) Gilmo Report Stock Chart

Elsewhere, recent new issues Pandora Media (P) and Groupon (GRPN) removed themselves from contention last week,
while Zillow (Z) hangs on after seeing buyers emerge at its 50-day moving average line.

Zillow (Z) Gilmo Report Stock Chart

In summation, the market has come a long way since Dec. 19, and is entitled to more backing-and-filling beyond what was seen last week. Whether this happens or not remains to be seen. Last week’s comment holds: “given that most glamours have already broken out of bases and no longer offer attractive entry, as well as the duration of the averages’ advance, this is a time to tread lightly in terms of new commitments.” The exception would be if a legitimate attractive entry point presents itself, however these are few and far between currently.

Kevin Marder

Gil Morales & Company, LLC (“GMC”), 8033 Sunset Boulevard, Suite 830, Los Angeles, California, 90046. GMC is a Registered Investment Adviser. This information is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to GMC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Gil Morales & Company, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2008-2018 Gil Morales & Company, LLC. All rights reserved.